We have known for a long time the percentage effects that differing credit mistakes can have on your score. For a review of that, go to this previous post.
Just recently, the good folks at the Fair Isaac have drawn back the curtain to give us a glimpse of the real drop in points that each credit mistake will have on your score. And, it does correspond to the percentage that each mistake will have on your credit score. The higher the score before the blemish, the bigger the point drop. Percentages remain the same.
Let’s take a look at the chart that they published:
As you can see, a maxed out credit card will have your score drop by up to 45 points if you started with a 780 score – but only 10-30 points with a starting score 100 points below that.
And, one thing they revealed about this chart is that it made an assumption that the credit user profiled in these numbers has a nice mix of credit, including multiple credit cards, car loans, a mortgage, student loans and installment loans. In my experience, the less types of credit that you have, the greater a blemish will impact your score.
I think this is very enlightening, especially for those of you around Atlanta that are planning on buying a home or refinancing your home in the coming year. Maintaining a good credit score is really fairly simple. Just pay on time, maintain low credit card balances, and accept new credit sparingly.
And, in these tough economic times, there have been a number of people who have asked me about possibly going with a debt consolidation company to help get out of those credit cards that are so easy to run up significant balances on.
My advice is to avoid that at all costs – and if needed, call and negotiate with your creditors yourself. The reason is that even though you are trying to do the right thing and pay the bills, just with some help, your score will drop between 45 and 125 points – and from a mortgage perspective, you will be penalized just as if you declared Chapter 13 bankruptcy.
A whole other thing is credit repair (as opposed to debt consolidation). And you can do that yourself, or you can use a reputable company that specializes in helping you clear up items on credit that need corrected. If you are interested in that, just contact me. I have worked with various companies that do this credit repair over the years, and know the good from the scammers.
So, if you are wanting to buy or refinance a home around Atlanta, this information should take some of the mystery out of the credit scoring models.
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